Budget: Govt. Sets Record Disinvestment Target of Rs 1.05 Lakh Crore to Sell Off PSU Stakes

Paving a much easier way to the total privatisation of Central Public Sector Enterprises (CPSEs), Finance Minister Nirmala Sitharaman on Friday, July 5, presented her maiden budget in Parliament with a record high disinvestment target of Rs 1.05 lakh crore.

Even though its clear from the finance minister’s budget speech that total privatisation is one of the main agendas of the Centre, the FM hardly used the term privatisation. The term that they used is strategic disinvestment. This move will see the government lowering its stake in some CPSEs to below 51%.

The Modi-led government’s all-time high disinvestment target of Rs 1.05 lakh crore, is up from Rs 90,000 crore projected in the Interim Budget 2019-20 in February. In 2018-19, the government raised Rs 84,972 crore from CPSE disinvestment, while in 2017-18, the figure was Rs 1,00,056 crore.

Presenting the Budget 2019-20, Sitharaman said the government has been following the policy of disinvestment in non-financial public sector undertakings maintaining the government stake not to go below 51%.

"The government is considering, in case where the undertaking is still to be retained in government control, to go below 51% to an appropriate level on case to case basis. Government has also decided to modify present policy of retaining 51% government stake to retaining 51% stake inclusive of the stake of government-controlled institutions," she said.

Also read : Union Budget 2019-20: No Shift in Policy Direction

However, the leading trade unions have raised their strong dissent over the government’s decision to sell off public sector undertakings (PSUs). “The Budget targeted for earning Rs 1.05 lakh crore from strategic sale and disinvestment of PSUs –another dubious method of handing over national productive assets on a platter to private business. Along with that, the budget has proposed the minimum public holding of shares in companies would be made 35% (from present 25%) making the disinvestment of PSU shares to the tune of minimum 35% fate accompli,” Centre of Indian Trade Unions (CITU) said in a press statement.

Reiterating that the strategic disinvestment of select CPSEs would continue to remain a priority of this government, the FM indicated the government’s commitment to private players rather than the interest of the public and the national properties. She said, “In view of the current macro-economic parameters, the government would not only reinitiate the process of strategic disinvestment of Air India, but would offer more CPSEs for strategic participation by the private sector." She also added that the consolidation of CPSEs will continue.

According to a guidance note issued on October 5, 2017, by the Department of Investment & Public Asset Management under Ministry of Finance, “strategic disinvestment implies sale of substantial portion of the Government shareholding of a Central Public Sector Enterprise (CPSE) of up to 50%, or such higher percentage as the competent authority may determine, along with transfer of management control”.

Also read: Union Budget: Who Gains, Who Loses?

Speaking to reporters after the Budget presentation, the FM said that the Rs 1.05 lakh crore target is "very realistic" and disinvestment is a reform agenda which needs to be pushed because "we do not want the economy to stagnate".

"We did announce about government reducing holding (below 51%), but yet there are two or three different government agencies, altogether, holding it over and above 51%. We thought it should be opened up. Government still retains its ownership, but if you open it up, you are at least giving opportunity to let us say small retail purchasers," she added.

To improve the capital flows into the Indian economy, it is important to align domestic corporate systems and practices with global ones, said the FM.

"Government intends to further encourage retail participation in CPSEs which, of late, have shown encouraging upward trend. In order to provide additional investment space, the government would realign its holding in CPSEs, including banks, to permit greater availability of its shares and to improve depth of its market," Sitharaman said.

Having raised over Rs 45,000 crore from exchange-traded funds (ETF) last fiscal, she said ETFs have proved to be an important investment opportunity for retail investors and have turned out to be a good instrument for the divestment programme.

"To expand this further, the government will offer an investment option in ETFs on the lines of equity-linked savings scheme (ELSS). This would also encourage long-term investment in CPSEs," she added.

For bringing better public ownership of the PSUs and also bring greater commercial and market orientation of the listed PSUs, the government will take all necessary steps to meet public shareholding norms of 25% for all listed PSUs, the minister said.

Further, the government will raise the foreign shareholding limits to maximum permissible sector limits for all PSU companies which are part of Emerging Market Index.

Other than the disinvestment drive, the government proposed Public-Private Partnership (PPP) model in the name of faster development. Highlighting the needs of large scale investments in various sectors, the minister declared the government’s policy to incorporate private players through PPP model in various public sectors including Indian Railways.

As per the budget estimation, Railway Infrastructure would need an investment of Rs 50 lakh crore between 2018-2030. “Given that the capital expenditure outlays of Railways are around 1.5 to 1.6 lakh crore per annum, completing even all sanctioned projects would take decades. It is therefore proposed to use Public-Private Partnership to unleash faster development and completion of tracks, rolling stock manufacturing and delivery of passenger freight services,” she said.

Also read: Budget Seeks Bigger Role for Private Players in Rail Infrastructure Development

(With inputs from PTI)